Asked by Myrick Kelly on May 23, 2024
Verified
A firm produces Ping-Pong balls using two inputs.When input prices are ($15, $7) the firm uses the input bundle (17, 71) .When the input prices are ($12, $24) the firm uses the bundle (77, 4) .The amount of output is the same in both cases.Is this behavior consistent with WACM?
A) Yes.
B) No.
C) It depends on the level of the fixed costs.
D) We have to know the price of the output before we can test WACM.
E) It depends on the ratio of variable to fixed costs.
Weak Axiom of Cost Minimization (WACM)
An economic principle stating that if a set of goods is chosen over another set at the same prices, then the chosen set should not cost more than the other when prices change.
Input Bundle
A combination of resources or inputs used in the production of goods and services.
- Calculate input ratios and optimal bundle selections under different pricing scenarios.
Verified Answer
RG
Riddhi GohelMay 28, 2024
Final Answer :
A
Explanation :
The firm's behavior is consistent with the Weak Axiom of Cost Minimization (WACM), which states that if the price ratio of inputs changes, the firm will adjust its input bundle to minimize costs for the same level of output. The change in input bundles in response to the change in input prices demonstrates this behavior.
Learning Objectives
- Calculate input ratios and optimal bundle selections under different pricing scenarios.